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Legal Analysis of Provisions of the Eurasian Economic Union Treaty on Formation of the Union’s Common Electric Power Market

Victoria Valeryevna Romanova, Head of the Energy Law Department of Kutafi n Moscow State Law University (MSAL), Head of the Energy Law  Department of the Institute of State and Law of the Russian Academy of Sciences, Doctor of Law

In this article, the author deals with conceptual provisions of stage-by-stage formation of the common electric power market of the Eurasian Economic Union, inter alia, on interaction of the Member States in the electric power industry; on formation of the common electric power market, on access to services of natural monopoly entities in the electric power industry and on interstate transmission of electric power (capacity), draws attention to features of international legal unification in the electric power industry and issues of harmonization of legislation of the Member States of the Eurasian Economic Union.

In Annual Presidential Address to the Federal Assembly, Vladimir Vladimirovich Putin, President of the Russian Federation, noted that international economic cooperation shall be based on such core principles as equality, pragmatism and mutual respect[1]. Vladimir Vladimirovich Putin, President of the Russian Federation, mentioned the Eurasian Economic Union Treaty as an example of such cooperation. It should be noted that this Treaty became a legal basis for common energy markets of the Member States of the Eurasian Economic Union[2].

It is worth noting that the Eurasian Economic Union Treaty stipulates basic principles of interaction in the energy sector. These principles are formalized in cl. 1, Art. 79 of the Eurasian Economic Union Treaty and include (1) market pricing for energy sources; (2) development of competition in common markets of energy sources; (3) absence of technical, administrative and other obstacles to trading in energy sources, relevant equipment, technologies and related services; (4) development of the transport infrastructure of common markets of energy sources; (5) non-discriminatory conditions for the Member States’ business entities in common markets of energy sources; (6) favorable conditions for attraction of investments in the Member States’ energy complex; (7) harmonization of national standards and rules of operation of the technological and commercial infrastructure of common markets of energy sources. These provisions define the fundamental basis of interaction of the Member States of the Eurasian Economic Union Treaty in the energy sector.

In addition to the general basis of cooperation of the Member States in the energy sector, the Eurasian Economic Union Treaty determined fundamentals of formation of the Union’s common electric power market.

The fundamentals of formation of the Union’s common electric power market are stipulated in Art. 81 of the Eurasian Economic Union Treaty and are as follows: (1) the Member States shall implement stage-by-stage formation of the Union’s common electric power market on a basis of parallel electric power systems with a view to the transitional provisions stipulated by cl. 2 and 3, Art. 104 of the Treaty[3]; (2) the Member States shall develop a concept and program of formation of the Union’s common electric power market subject to approval by the Supreme Council; (3) the Member States shall sign an international treaty within the Union on formation of the common electric power market based on provisions of the approved concept and program of formation of the Union’s common electric power market.

Article 82 of the Eurasian Economic Union Treaty contains provisions on access to services of natural monopoly entities in the electric power industry, which refer to Annex No. 21 of the Treaty.

Annex No. 21 contains the Protocol on Access to Services of Natural Monopoly Entities in the Electric Power Industry, including basic principles of pricing and tariff policy, and annexes to the said Protocol[4].

The legal analysis of provisions contained in the Protocol on Access to Services of Natural Monopoly Entities in the Electric Power Industry, including the Basic Principles of Pricing and Tariff Policy, shows that the scope of those provisions is much broader than that formulated in the Protocol name.

The Protocol has four sections of conceptual provisions: (1) on cooperation of the Member States in the electric power industry; (2) on formation of the common electric power market; (3) on access to services of natural monopoly entities in the electric power industry; (4) on interstate transmission of electric power (capacity).

The said sections stipulate fundamental rules of formation and operation of the Member States’ common electric power market meaning a system of relations between entities of the Member States’ domestic electric power markets associated with purchase and sale of electric power (capacity) and related services.

Each section of conceptual provisions included in the Protocol addresses and then specifies basic principles of formation of common markets of energy sources of the Member States of the Eurasian Economic Union.

Moreover, each conceptual section formed in the Protocol consistently specifies conceptual provisions of previous sections and stipulates own special provisions.

The first section features the concept of interaction of the Member States in the electric power industry, which is based on six basic provisions: (1) use of technical and economic advantages of parallel operation of the Member States’ electric power systems; (2) undiminished economy in parallel operation; (3) use of mechanisms that are based on market relations and fair competition as a major instrument of forming a sustained system to meet demands for electric power (capacity); (4) stage-by-stage formation of the Member States’ common electric power market on a basis of parallel electric power systems of the Member States with a view to features of existing models of the Member States’ electric power (capacity) markets; (5) stage-by-stage harmonization of the Member States’ electric power legislation; (6) harmonization of technical standards and rules.

The first, second, third, fourth and fifth provisions are formalized in the next section stipulating the fundamentals of formation of the common energy market. In this respect, we should pay attention to some details of the said provisions.

For example, the section of conceptual provisions on formation of the common electric power market updated the provision on stage-by-stage harmonization of the Member States’ electric power legislation with the statement that this rule extends to disclosure of information by entities of the Member States’ common electric power market.

The provision on the use of mechanisms based on market relations and fair competition is reinforced with the statement of their prioritized use in competitive types of activities.

In addition to the said provisions, the section with the conceptual fundamentals of formation of the Union’s common electric power market includes other provisions:

- on unhindered access to services of natural monopoly entities in the electric power industry within the limits of available technical capability subject to prioritized use of the said services to meet internal demands of the Member States in interstate transmission of electric power (capacity);

- on stage-by-stage transformation of the structure of national vertically integrated companies in the electric power industry to single out competitive and monopolistic types of activities;

- on development of interstate relations in the electric power industry of the Member States pursuant to the agreed model of the Member States’ common electric power market;

- on provision, at the relevant stage of market integration, of access for producers and consumers of electric power to the Member States’ electric power markets with a view to the interests of national economies;

- on trading in electric power among the Member States’ entities with a view to the Member States’ energy security.

The next section stipulates conceptual provisions on unhindered access to services of natural monopoly entities in the electric power industry. This section details constituent elements of one of the fundamentals of formation of the Union’s common electric power market.

There are five constituent elements of this basic provision and, respectively, the third section: (1) equal requirements to entities of the domestic electric power (capacity) market established by the legislation of the Member State, in which territory such services are rendered; (2) consideration of the Member States’ legislation in provision of access to services of natural monopolies in the electric power industry subject to prioritized use of the said services to meet internal demands of the Member States; (3) ensuring proper technical conditions of electric power facilities affecting the modes of parallel operation of the Member States’ electric power systems in provision of services by natural monopoly entities in the electric power industry; (4) contractual arrangement of relations arising between entities of the Member States’ domestic electric power markets; (5) non-gratuitous nature of services rendered by the Member States’ natural monopoly entities in the electric power industry.

The fourth section contains conceptual provisions on interstate transmission of electric power (capacity). There are four such provisions. The first provision stipulates that interstate transmission of electric power (capacity) through an electric power system of a neighboring Member State shall be ensured by the Member States within the limits of available technical capability subject to prioritized provision of the Member States’ internal demands for electric power (capacity).

The second provision stipulates the priority ranking in determination of the Member States’ technical capability of interstate transmission of electric power (capacity)[5].

The third provision contains the rule stating that the Member States’ authorized organizations shall, in interstate transmission of electric power (capacity), be guided by the principle of reimbursement of interstate transmission of electric power (capacity) on a basis of the Member States’ legislation.

Pursuant to the fourth provision, interstate transmission of electric power (capacity) for discharge of obligations in relation to third states’ electric power entities shall be regulated bilaterally with a view to the relevant Member State’s legislation.

In addition to the said basic provisions, the Protocol stipulates three more rules related to interstate transmission of electric power (capacity): (1) interstate transmission of electric power (capacity) and operation of power grid facilities needed for interstate transmission of electric power (capacity) shall be ensured in accordance with statutory legal and technical documents of the Member State providing services related to interstate transmission of electric power (capacity); (2) in case of refusal to implement interstate transmission of electric power (capacity), organizations authorized by the Member States shall provide materials supporting the refusal; (3) relations in interstate transmission of electric power (capacity) shall be settled with a view to any other valid international treaties.

The Protocol also stipulates that prices (tariffs) for services of natural monopoly entities in the electric power industry shall be set in accordance with the Member States’ legislation. Tariffs for services of natural monopoly entities in the electric power industry in the Member States’ common electric power market shall not exceed similar internal tariffs for entities of the domestic electric power market.

We can make the following conclusions on a basis of the above brief legal analysis of the fundamentals of formation of the Union’s common electric power market.

The common electric power market shall be formed step by step on a basis of the approved model of the common electric power market using technical and economic advantages of parallel electric power systems.

Provision is made for prioritized use of services of natural monopoly entities to meet internal demands of the Member States.

When determining technical capability of interstate transmission of electric power (capacity), provision is made for prioritized satisfaction of internal demands for electric power (capacity) of the Member State, through the electric power system of which it is planned to implement interstate transmission.

Provision is made for stage-by-stage harmonization of the Member States’ electric power legislation.

Prices (tariffs) for services of natural monopoly entities in the electric power industry shall be set in accordance with the Member States’ legislation. Tariffs for services of natural monopoly entities in the electric power industry in the Member States’ common electric power market shall not exceed similar internal tariffs for entities of the domestic electric power market.

With a view to provisions of Art. 81, cl. 2 and 3 of Art. 104 of the Treaty, the reviewed elements of the sections of conceptual provisions will be obviously used in preparation of conceptual and program documents on formation of the common electric power market and then will be developed in the relevant international treaty.

The deadlines for preparation of the documents stipulated are quite tight given the need to harmonize national standards and rules in parallel operation of the Member States’ electric power systems.



[1] URL: http://www.kremlin.ru/news/47173

[2] The Eurasian Economic Union Treaty was signed on May 29, 2014 in Astana. See: the text of the Treaty and Annexes thereto. URL: http://www.economy.gov.ru/wps/wcm/connect/economylib4/mer/about/structure/depsng/

agreement-eurasian-economic-union; Federal Law dd. October 3, 2014 No. 279-ФЗ “On Ratification of the Treaty on the Eurasian Economic Union” // Rossiyskaya Gazeta, October 8, 2014 (in Russian); the Treaty dd. October 10, 2014 on Accession of the Republic of Armenia to the Eurasian Economic Union Treaty dd. May 29, 2014 // Official website of the Eurasian Economic Commission. URL: http://www.eurasiancommission.org (date of access: October 30, 2014).

[3] Cl. 2, Art. 104 of the Eurasian Economic Union Treaty stipulates that the concept of formation of the common electric power market shall be approved by the Supreme Council till July 1, 2015, the program of formation of the common electric power market – till July 1, 2016 and the term for implementation of the program’s activities – till July 1, 2018. Cl. 3, Art. 104 of the Eurasian Economic Union Treaty stipulates that the international treaty within the Union on formation of the Union’s common electric power market shall be signed upon completion of activities of the program on formation of the Union’s common electric power market, shall contain, inter alia, unified rules of access to services of natural monopoly entities in the electric power industry, and determines that the Member States shall ensure the entry of this Treaty into force on or before July 1, 2019.

[4] The Annexes to this Protocol define the Methodology of Interstate Transmission of Electric Power (Capacity) among the Member States, the Procedure for Determining Technical Capability and Planned Facilities for Interstate Transmission of Electric Power (Capacity) Based on Planned Annual, Monthly, Daily and Diurnal Operational Modes of Electric Power Systems, including Provisions Stipulating Functions and Powers of the Planning Coordinator, the List of the Member States’ Entities Authorized to Arrange and Implement Interstate Transmission of Electric Power (Capacity) Indicating Functions of Each Organization in Provision of Interstate Transmission of Electric Power (Capacity), the List of Components Included in Tariffs of Natural Monopoly Entities in Interstate Transmission of Electric Power (Capacity), the List of Components Related to Interstate Transmission of Electric Power (Capacity), which are not Included in Tariffs of Natural Monopoly Entities, the Requirements to Contractual Arrangement of Interstate Transmission of Electric Power (Capacity) Pursuant to the Member States’ Legislation, the Procedure of Data Exchange of Fiscal Metering on Actual Hourly Volumes of Interstate Overflows of Electric Power between the Member States’ Business Entities, the Procedure for Determining the Actual Overflow Balance of Electric Power through the Member States’ Interstate Power Transmission Lines, the Procedure for Calculation of Volumes and Cost of Deviations of Actual Overflows through Interstate Cross-Sections from Planned Values during Interstate Transmission of Electric Power (Capacity) within the Union.

[5] The priority ranking is determined as follows: (1) meeting internal demands for electric power (capacity) of the Member State, through the electric power system of which it is planned to implement interstate transmission; (2) interstate transmission of electric power (capacity) from one part of the Member States’ electric power system to another part through an electric power system of a neighboring Member State; (3) interstate transmission of electric power (capacity) through the Member State’s electric power system from an electric power system of one Member State to an electric power system of another Member State; (4) interstate transmission of electric power (capacity) through the Member State’s electric power system to discharge obligations in relation to third states’ electric power entities.